Stock Story -
Telecommunications and cable services provider Altice USA (NYSE:ATUS) fell short of analysts' expectations in Q2 CY2024, with revenue down 3.6% year on year to $2.24 billion. It made a GAAP profit of $0.03 per share, down from its profit of $0.17 per share in the same quarter last year.
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Altice (ATUS) Q2 CY2024 Highlights:
- Revenue: $2.24 billion vs analyst estimates of $2.26 billion (small miss)
- EPS: $0.03 vs analyst estimates of $0.07 (-$0.04 miss)
- Gross Margin (GAAP): 67.9%, up from 67.2% in the same quarter last year
- Free Cash Flow was -$40.93 million, down from $63.57 million in the previous quarter
- Broadband Subscribers: 4.09 million, down 138,300 year on year
- Market Capitalization: $961.3 million
Cable and SatelliteThe massive physical footprints of fiber in the ground or satellites in space make it challenging for companies in this industry to adjust to shifting consumer habits. Over the last decade-plus, consumers have ‘cut the cord’ to their traditional cable subscriptions in favor of streaming options. While that is a headwind, this affinity to streaming means more households need high-speed internet, and companies that successfully serve customers can enjoy high retention rates and pricing power since the options for internet connectivity in any geography is usually limited.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Over the last five years, Altice's revenue declined by 1.3% per year. This shows demand was weak, a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Altice's recent history shows its demand has stayed suppressed as its revenue has declined by 4.5% annually over the last two years.
Altice also discloses its number of broadband subscribers and pay tv subscribers, which clocked in at 4.09 million and 2.02 million in the latest quarter. Over the last two years, Altice's broadband subscribers averaged 2.6% year-on-year declines while its pay tv subscribers averaged 11% year-on-year declines.
This quarter, Altice missed Wall Street's estimates and reported a rather uninspiring 3.6% year-on-year revenue decline, generating $2.24 billion of revenue. Looking ahead, Wall Street expects revenue to decline 2.9% over the next 12 months.
Cash Is KingIf you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Altice has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.1%, lousy for a consumer discretionary business. The divergence from its good operating margin stems from its capital-intensive business model, which requires Altice to make large cash investments in working capital and capital expenditures.
Altice burned through $40.93 million of cash in Q2, equivalent to a negative 1.8% margin. The company's cash burn increased by 18.3% year on year and is a deviation from its longer-term margin, raising some eyebrows.
Over the next year, analysts predict Altice's cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 3.8% for the last 12 months will decrease to 2.7%.
Key Takeaways from Altice's Q2 Results We struggled to find many strong positives in these results. Its EPS missed and its revenue fell short of Wall Street's estimates. Overall, this quarter could have been better. The stock traded down 9.5% to $1.90 immediately following the results.
